Cisco Reports Second Quarter Earnings

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Q2 Earnings Per Share: $0.31 GAAP (increase of 41% year over year); $0.33 non-GAAP (increase of 27% year over year)

SAN JOSE, Calif. - February 6, 2007 - Cisco®, the worldwide leader in networking that transforms how people connect, communicate and collaborate, today reported its second quarter results for the period ended January 27, 2007. Cisco reported second quarter net sales of $8.4 billion, net income on a generally accepted accounting principles (GAAP) basis of $1.9 billion or $0.31 per share, and non-GAAP net income of $2.1 billion or $0.33 per share. Scientific-Atlanta, Inc., acquired during the third quarter of fiscal 2006, contributed net sales of $639 million during the second quarter of fiscal 2007.

"Cisco achieved record results that were well balanced across our geographies, products, services, customer segments and new markets," said John Chambers, chairman and CEO, Cisco. "This illustrates our key competitive advantage of being able to develop a long-term vision, execute on our strategy and deliver consistent results.

"It is this unique ability to balance between strategy and innovation that has positioned Cisco to take advantage of key emerging business and IT trends such as the rise of video on the network," Chambers continued. "As the network becomes the platform, we are seeing more and more signs that all forms of IT and communication are moving into the network and increasing the total available market to Cisco."

GAAP Results

Q2 2007

Q2 2006

vs. Q2 2006

Net Sales

$8.4 billion

$6.6 billion

+27.3%

Net Income

$1.9 billion

$1.4 billion

+39.7%

Earnings per Share

$0.31

$ 0.22

+40.9%

Non-GAAP Results

Q2 2007

Q2 2006

vs. Q2 2006

Net Income

$2.1 billion

$1.6 billion

+28.1%

Earnings per Share

$0.33

$ 0.26

+26.9%

Net sales for the first six months of fiscal 2007 were $16.6 billion, compared with $13.2 billion for the first six months of fiscal 2006. Scientific-Atlanta, Inc. contributed $1.2 billion to net sales during the first six months of fiscal 2007. Net income for the first six months of fiscal 2007, on a GAAP basis, was $3.5 billion or $0.56 per share, compared with $2.6 billion or $0.42 per share for the first six months of fiscal 2006. Non-GAAP net income for the first six months of fiscal 2007 was $4.0 billion or $0.64 per share, compared with $3.2 billion or $0.51 per share for the first six months of fiscal 2006.

A reconciliation between net income on a GAAP basis and non-GAAP net income is provided in the table on page 6, which includes additional information regarding the effect of the December 2006 reinstatement (retroactive to January 1, 2006) of the U.S. federal research and development (R&D) tax credit.

Cisco will discuss second quarter results and business outlook on a conference call and Webcast at 1:30 p.m. Pacific Time today. Call information and related charts are available at http://investor.cisco.com.

Financial Highlights

Cash flows from operations were $2.7 billion for the second quarter of fiscal 2007, compared with $1.9 billion for the second quarter of fiscal 2006, and compared with $2.3 billion for the first quarter of fiscal 2007.

Cash and cash equivalents and investments were $20.7 billion at the end of the second quarter of fiscal 2007, compared with $17.8 billion at the end of the fourth quarter of fiscal 2006, and compared with $19.5 billion at the end of the first quarter of fiscal 2007.

During the second quarter of fiscal 2007, Cisco repurchased 121 million shares of common stock at an average price of $27.01 per share for an aggregate purchase price of $3.3 billion. As of January 27, 2007, Cisco had repurchased and retired 2.1 billion shares of Cisco common stock at an average price of $19.00 per share for an aggregate purchase price of approximately $40.2 billion since the inception of the stock repurchase program.

Days sales outstanding in accounts receivable (DSO) at the end of the second quarter of fiscal 2007 were 31 days, compared with 38 days at the end of the fourth quarter of fiscal 2006, and compared with 34 days at the end of the first quarter of fiscal 2007.

Inventory turns on a GAAP basis were 7.8 in the second quarter of fiscal 2007, compared with 8.5 in the fourth quarter of fiscal 2006, and compared with 8.3 in the first quarter of fiscal 2007. Non-GAAP inventory turns were 7.6 in the second quarter of fiscal 2007, compared with 8.3 in the fourth quarter of fiscal 2006, and compared with 8.1 in the first quarter of fiscal 2007.

"We are very pleased with our overall performance and balance for the second quarter of the fiscal year," said Dennis Powell, chief financial officer, Cisco. "Cisco demonstrated continued strength of both our Cisco standalone business, with 18 percent revenue growth year over year, and our Scientific Atlanta business, with 21 percent growth year over year, which exceeded our expectations for combined revenue, operating income and earnings per share."

Business Highlights

Acquisitions

Cisco announced a definitive agreement to acquire IronPort Systems, Inc., a leading provider of messaging security appliances, focusing on enterprise spam and spyware protection.

Cisco introduced two models to its iPhone®family of voice-over-IP products that marry the familiarity of the telephone with compelling Internet services, access to personal content, and integration with the home, designed to create complete solutions for the communication needs of consumers.

Cisco introduced the Cisco MDS 9124 Multilayer Fabric Switch, designed to provide enterprise-class capabilities such as virtual storage area networks, advanced security, high availability and flexibility, all powered by the Cisco SAN operating system.

Cisco and Sitronics JSC, a leading technology company in Russia and the Commonwealth of Independent States (CIS), announced a regional alliance to address the rapidly expanding telecommunications market in Russia, CIS and other emerging markets.

Shui On Land Limited, a leading property developer in Mainland China, is planning to work with Cisco to build world-class digital communities in China.

Singapore Telecommunications Limited is planning to deploy a Wi-Fi mesh network from Cisco in the North Region of Singapore.

Key Milestones

Cisco announced that it plans to present two Cisco TelePresence systems each to the governments of five nations in the Emerging Markets as a means to improve communications and collaboration.

Cisco achieved numerous product milestones throughout the second quarter, having now sold more than 2 million Cisco integrated services routers, shipping its 10-millionth IP phone and deploying its 500th Cisco CRS-1 Carrier Routing System.

Editor's Note:

Q2 FY07 conference call to discuss Cisco's results along with its business outlook to be held at 1:30 p.m. Pacific Time, Tuesday, February 6, 2007. Conference call number is 888-848-6507 (United States) or 212-519-0847 (international).

Conference call replay will be available from 4:30 p.m. Pacific Time, February 6, 2007 to 4:30 p.m. Pacific Time, February 13, 2007 at 866-357-4205 (United States) or 203-369-0122 (international). The replay is also available from February 6, 2007 through April 20, 2007 on the Cisco Investor Relations Website at http://www.cisco.com/go/investors.

Additional information regarding Cisco's financials as well as a Webcast of the conference call with visuals designed to guide participants through the call will be available at 1:30 p.m. Pacific Time, February 6, 2007. Text of the conference call's prepared remarks will be available within 24 hours of completion of the call. The Webcast will include both the prepared remarks and the question-and-answer session. This information, along with GAAP reconciliation information, will be available on the Cisco Investor Relations Website at http://www.cisco.com/go/investors.

Cisco (NASDAQ: CSCO) is the worldwide leader in networking that transforms how people connect, communicate and collaborate. Information about Cisco can be found at http://www.cisco.com. For ongoing news, visit http://newsroom.cisco.com.